A Tale of Two Markets: New Highs for Dow, S&P 500; Small-Caps Stumble

By Ben Levisohn

Yesterday looks to have been an exception, not the rule as Keurig Green Mountain (GMCR) and McKesson (MCK) helped the S&P 500 hit a new high, Microsoft (MSFT) helped boost the Dow Jones Industrial Average and Elizabeth Arden (RDEN) helped lead the Russell 2000 lower.

REUTERS

The S&P 500 inched up 0.04% to 1,897.45 today, a new high, while the Dow Jones Industrial Average rose 0.1% to 16,715.4, also a record high. The Nasdaq Composite, however, fell 0.3% to 4,130.17 and the Russell 2000 tumbled 1,1% to 1,121.16.

Keurig Green Mountain jumped 7.6% to $119.07 after Coca-Cola (KO) upped its stake in the company from 10% to 16%.Coca-Cola has gained 0.9% to $41.19.

McKesson has advanced 3% to $179.43 after the pharmaceutical distributor beat earnings forecasts and projected solid full-year profits. “We believe McKesson is one of the most attractive EPS growth stories in the healthcare services arena,” Sterne Agee’s Greg Bolan says.

Microsoft rose 1.8% to $40.42, making it the biggest gainer in the Dow. Microsoft announced that it would lower the price of its Xbox today.

Instinet’s Frank Cappelleri worries about the market’s lack of volume yesterday and explain what he’d like to see:

Does this matter? It certainly could, as the lack of participation could denote non-belief. After all, the last two months of violent choppy action have done a number on bearish and bullish traders alike.

Therefore, with the SPX up just shy of 1% but the R2k nearly 2.5% yesterday, many market observers are labeling it short covering and nothing more. Seeing the most beaten stocks pop so fervently, one can’t argue that much of it was indeed covering to lock in profits.

However, as noted yesterday here, a shift out of safety actually started on Thursday with the Utilities Sector getting uncharacteristically hammered. It continued on Friday, and yesterday, as the XLU was again the worst performer amongst the S&P Sector ETFs (Consumer Staples – defensive, as well – was second worst.)

The SPX didn’t need the high growth, speculative names to keep it afloat the last few months, but for this breakout to hold, the market will need demand for this space to persist. It doesn’t have to be today, but we do need see the R2k do something different – in other words, higher highs and higher lows would at least begin the repair process of some still nasty looking stocks.

RBC Capital Market’s Robert Sluymer expects the second and third quarters to remain tricky:

We continue to expect Q2 and Q3 to remain volatile, characterized by rapid trading short-term trading rotations. Despite meager volumes, a rebound in beta/momentum themes continues to show evidence of gaining traction since the option expiry lows in April.

ConvergEx’sNicholas Colas thinks the fact that no one is making much of the new highs in the Dow and S&P 500 could be good news for the market:

If there is an actual positive about the new highs on the Dow and S&P 500, it is that no one is “Yellin”. In reality, no one seems to care. It doesn’t make the evening general interest news, get retweeted 10,000 times, or dominate cocktail parties. The bearish case continues to get serious attention. Yes, the VIX is 2 standard deviations away from its long run average on the downside. But that’s not really yelling. That’s more like a bear yawning.

The upshot of all this is clear, if unexpected: U.S. equity markets are going higher in the near term. If they aren’t, they still are not going to have a “Road to Damascus” experience and change course. That’s how a trader would see this market, based solely on the price action. Yes, you can parse the data a 1,000 different ways, but in the end the only thing that matters is where things close.

About Stocks To Watch

Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.